TAX

ADMINISTRATION

IRS’ Implementation

of the Restructuring

Act’s Personnel

Flexibility Provisions

United States General Accounting Office

GAO Report to Congressional Requesters

April 2000

GAO/GGD-00-81

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

B-284218

April 28, 2000

The Honorable Bill Archer

Chairman, Committee on Ways and Means

House of Representatives

The Honorable Amo Houghton

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

To help the Internal Revenue Service (IRS) improve tax administration and

service to taxpayers, Congress included new requirements and more

flexibility for handling personnel issues in the IRS Restructuring and

Reform Act of 1998 (Restructuring Act).1

 Some of the act’s personnel

flexibility provisions are mandates requiring IRS to create a new

performance management system; terminate employees for specified acts

of misconduct, such as lying under oath in a taxpayer matter; eliminate the

use of enforcement statistics in employee evaluations; and develop a new

training plan that emphasizes customer service. Other personnel flexibility

provisions give IRS discretionary authority in hiring, paying, and recruiting

staff.

This report responds to your request that we provide a status report on

IRS’ implementation of these provisions. The report also discusses any tax

administration concerns that may have arisen in relation to

implementation.

To meet these objectives, we reviewed documentation on the status of

each personnel flexibility provision and interviewed officials from IRS

organizational units, the Department of the Treasury, and the Office of

Personnel Management (OPM). We also reviewed prior GAO and Treasury

Inspector General for Tax Administration (TIGTA) reports that related to

certain provisions. As agreed with the Subcommittee office, we did not

assess the effectiveness of the personnel flexibility provisions.

 

1

P.L. 105-206 was enacted on July 22, 1998. Title I, Subtitle C, Personnel Flexibilities, sections 1201-05,

list the provisions, which we summarize in app. I.
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IRS has implemented or begun to implement the mandated personnel

flexibility provisions in the Restructuring Act. Specifically, the agency has

begun implementing a new three-phase performance management system;

has been reviewing alleged employee misconduct and, as of March 1, 2000,

had terminated 17 employees for misconduct; has been working to

eliminate enforcement statistics in employee evaluations; and has

implemented a new training program emphasizing customer service.

IRS has also begun using some of the discretionary personnel flexibility

provisions permitted by the Restructuring Act. Senior managers have been

hired at critical pay;2

 a new pay-banding system for non-Senior Executive

Service (SES) managers has been adopted; and several streamlined

demonstration projects and new separation incentive payments are under

development. Also, certain recruitment, retention, and performance

bonuses have been paid.

IRS’ implementation of the personnel flexibility provisions raises several

tax administration concerns. As our prior report and a TIGTA report have

noted, IRS has had difficulty in eliminating the use of enforcement

statistics in employee evaluations.3

 Another TIGTA report found that IRS

has had difficulty developing an accurate system for counting taxpayer

complaints of employee misconduct.4

 In addition, as we have previously

reported, IRS employees have taken significantly fewer enforcement

actions to collect delinquent taxes since passage of the Restructuring Act.

Frontline employees we spoke to believed that the decline was due to a

lack of agency guidance on how to interpret the provision concerning

employee misconduct.5

Following a series of hearings concerning the treatment of taxpayers,

Congress concluded that IRS needed comprehensive reform. On July 22,

1998, Congress enacted the Internal Revenue Service Restructuring and

Reform Act to balance IRS’ responsibility to collect taxes with its

responsibility to protect the rights of taxpayers and serve the public.

 

2

The act provides that up to 40 individuals may be hired at a pay rate up to the Vice President’s,

currently $181,400.

3

IRS Personnel Administration: Use of Enforcement Statistics in Employee Evaluations (GAO/GGD-99-

11, Nov. 30, 1998) and TIGTA, The IRS Should Continue Its Efforts to Achieve Full Compliance With

Restrictions on the Use of Enforcement Statistics (Sept. 29, 1999), Ref. No. 199910073.

4

TIGTA, The IRS Can Further Improve Its Complaint Processing Procedures and Systems (Sept. 29,

1999), Ref. No. 199910070.

5

IRS Restructuring Act: Implementation Under Way but Agency Modernization Important to Success

(GAO/T-GGD-00-53, Feb. 2, 2000).

Results in Brief

Background
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Page 3 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

The personnel flexibility provisions of the act cover a wide range of

personnel-related functions, including

• providing critical pay to attract senior managers,

• rewarding senior executives for meeting IRS goals and objectives,

• terminating employees for misconduct,

• eliminating the use of enforcement statistics in employee evaluations, and

• developing a training program that emphasizes customer service.

As we have reported, the Restructuring Act mandated sweeping reforms at

IRS.6

 In addition to the personnel flexibilities, the act included other

provisions to reorganize IRS and to provide additional taxpayer protection

and rights. In response to the act, IRS changed its mission statement to

emphasize taxpayer service and is restructuring its organization into four

operating divisions to serve different groups of taxpayers. The status of

implementation of the taxpayer protection and rights provisions is the

subject of a forthcoming GAO report.7

To meet our reporting objectives, we reviewed documentation from

various IRS organizations on the status of each personnel flexibility

provision of the Restructuring Act. We interviewed officials from the

organizations responsible for implementing the various personnel

provisions, including IRS’ Chief, Management and Finance; Chief, Human

Resources; and National Director, Complaint Processing Analysis Group.

For those provisions requiring Treasury or OPM approval, we obtained the

views of cognizant officials. We also asked IRS and Treasury officials for

their views on any tax administration concerns or problems they

encountered in implementing the provisions of the act. Finally, for some

provisions, we reviewed prior GAO and TIGTA reports. As agreed with the

Subcommittee office, we did not assess the effectiveness of the personnel

flexibility provisions.

We did our work primarily at IRS headquarters in Washington, D.C.,

between November 1999 and March 2000 in accordance with generally

accepted government auditing standards.

 

6

IRS Management: Formidable Challenges Confront IRS as It Attempts to Modernize (GAO/TGGD/AIMD-99-255, July 22, 1999).

7

Tax Administration: IRS’ Implementation of the Restructuring Act’s Taxpayer Protection and Rights

Provisions (GAO/GGD-00-85, April 2000).

Scope and

Methodology
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We requested comments on a draft of this report from the Commissioner

of Internal Revenue. The comments are discussed at the end of this letter

and are reprinted in appendix III.

IRS has either implemented or begun to implement the personnel

flexibility provisions mandated by the Restructuring Act. IRS has begun to

overhaul its performance management system and has terminated

employees for misconduct. In addition, IRS has been working to eliminate

the use of enforcement statistics in employee evaluations and has

implemented a new customer service training program.

IRS officials believe that they have established a new performance

management system that conforms with the requirements of the

Restructuring Act. Section 9508 of the U.S. Code, added by the

Restructuring Act,8

 required that IRS establish a performance management

system that would maintain individual accountability by establishing

retention standards, periodically determine whether each employee met

the standards, and take action with any employee whose performance did

not meet the standards.

IRS has a three-phased approach for implementing its new performance

management system. IRS officials believe that such an approach is needed

because of the complexity of developing a new system while undergoing

major organizational change, promoting workforce diversity, and

maintaining cooperative labor relations. The three phases are

• Phase one: Establishment of a retention standard for all employees (a level

of performance necessary to be retained in a job) that requires the fair and

equitable treatment of taxpayers was accomplished on July 1, 1999.

According to IRS’ Chief Human Resources Officer, phase one meets the

requirements of section 9508.

• Phase two: Performance plans for managers were implemented by January

31, 2000. Performance plans for other employees are currently being

developed, beginning with those for newly created positions.

• Phase three: Integration with other human resource systems is scheduled

for some time during fiscal year 2001.

As of March 1, 2000, IRS had terminated 17 employees in accordance with

this provision. Section 1203 of the Restructuring Act required IRS to

terminate an employee if there was an administrative or judicial

determination that the employee committed certain acts or omissions in

 

8

Section 1201 amends title 5 of the U.S. Code, adding a new chapter 95 (sections 9501-10).

IRS Has Implemented

or Begun to Implement

the Mandated

Provisions

Overhaul of IRS’

Performance Management

System Has Begun

IRS Has Terminated

Employees for Misconduct
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performance of official duties.9 Such acts include lying under oath in a

taxpayer matter and falsifying documents to conceal employee mistakes

(see app. I). IRS has procedures in place for receiving and investigating

alleged violations. Of over 400 allegations of employee misconduct, IRS

found that about 40 were probable violations of the act, while about 70

were considered to be misconduct not covered by the act.

IRS has taken steps to meet the Restructuring Act’s section 1204

prohibition on using enforcement statistics to impose or suggest

production quotas or goals for any employee or to evaluate an employee

based on such statistics. However, IRS does not have the information

necessary to determine whether the implementation steps have been

sufficient.

IRS has taken several steps to implement section 1204. IRS has taken

action on the recommendations in our earlier report on IRS’ use of

enforcement statistics, such as making the certification form and

associated guidance more specific about the appropriate and inappropriate

use of enforcement results.10 Our current review showed that appraisal

forms had been revised in late 1998 to add certification that enforcement

statistics were not used in evaluating employees. In addition, IRS has

issued a handbook on the appropriate use of performance measures,

conducted agencywide training sessions, and planned to issue additional

guidance for supervisors on how to avoid the use of enforcement statistics

in setting employee performance expectations and monitoring or

evaluating performance.

Information collected after passage of the Restructuring Act, but before

IRS’ implementation was complete, showed that enforcement statistics

continued to be used inappropriately. In a spring 1999 survey, IRS found

that about 7 percent of its employees in the Collection division and 9

percent in the Examination division reported that their supervisors had

either discussed enforcement statistics with them or used statistics to

evaluate their performance. A TIGTA report showed that as of September

1999, about 2 percent of the evaluation documents contained suggestions

of quotas.11

 

9

Section 1203(c)(1)-(2) provides the Commissioner with nondelegable authority to (1) in his sole

discretion, take a personnel action other than termination and (2) to set up a procedure that would be

used to determine whether an individual should be referred to him for such a determination.

10GAO/GGD-99-11, Nov. 30, 1998.

11TIGTA, 199910073, Sept. 29, 1999.

IRS Has Been Working to

Eliminate the Use of

Enforcement Statistics in

Employee Evaluations
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Neither we nor IRS have evaluated the effectiveness of the steps it has

taken. At present, IRS has some, but not all, of the performance

information it needs to make such an assessment. The results of IRS’ next

survey of employees should provide comparative data to assess whether

the agency has made progress in eliminating the use of enforcement

statistics in employee evaluations.

About 50,000 IRS employees had received the new customer service

training as of December 31, 1999. Section 1205 of the Restructuring Act

required IRS to submit a plan for a new training program emphasizing

customer service to the House Ways and Means and Senate Finance

Committees. IRS did develop and submit a new training plan to the

Committees on March 5, 1999. A pilot version of the new training was not

well received by employees, and as a result, IRS revised the course.

Feedback on the revised course showed improved employee satisfaction.

IRS has begun using the discretionary personnel flexibilities permitted by

the Restructuring Act. Senior executives have been hired using new critical

pay authority, a new pay-banding system for non-SES managers has been

approved, and several streamlined demonstration projects and new

voluntary separation incentive payments for employees are under

consideration. Also, IRS has paid retention allowances to certain service

center employees. As discussed below, some of the personnel flexibility

provisions have been used on a limited basis; others have not been used.

Section 9503 allowed IRS to hire as many as 40 critical pay managers for as

long as 4 years at up to the pay rate of the Vice President--$181,400.12 As of

February 11, 2000, IRS had hired 12 such managers13 and made preliminary

offers to another three using this provision. Additional announcements

have been prepared for eight more positions. These positions were

identified as critical to IRS’ success in improving tax administration and

customer service. Positions filled to date include the Chief Information

Officer, National Taxpayer Advocate, and Chief, Criminal Investigation

Division. (See app. II for a complete listing of positions.)

IRS has developed a senior manager broad-banding plan in concert with its

stakeholders, including Treasury, OPM, and the National Treasury

Employees Union. Section 9509 authorized IRS to implement a broadbanded pay system, also called pay banding, to assist in its reorganization.

 12The pay rate was $175,400 when the Restructuring Act was passed. The new pay rate was effective

Jan. 1, 2000.

13Although 12 critical pay managers had been hired, 1 resigned effective June 26, 1999.

IRS’ New Customer Service

Employee Training Program

Is Now in Place

IRS Has Begun Using

the Restructuring Act’s

Discretionary

Authority

New Senior Executives

Have Been Recruited

A Broad-Banded Pay

System Has Been Approved
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Pay-banding combines two or more pay grades. Using this provision, IRS

plans to combine former GS-14 and GS-15 managers, which according to

IRS’ Office of Human Resources would allow IRS to reduce staffing

imbalances. For example, IRS has 284 more managers than it needs in

some cities, while it has 132 unfilled positions in other cities. IRS has

received Treasury approval to begin placing managers into the new pay

band as early as April 2000.

Our review of IRS documentation showed that IRS is considering some

streamlined demonstration projects that are permitted by section 9507, but

it has not used this provision yet.14 Congress intended that the

demonstration projects would allow the Commissioner to identify ways to

improve personnel management, provide increased individual

accountability, eliminate obstacles to disciplining poor performers,

expedite appeals that arise from adverse actions, and promote pay based

on performance. Such projects would not be subject to the current lengthy

approval processes generally applicable under title 5. Two demonstration

projects that IRS was considering as of November 30, 1999, were

modifying the rating cycle for senior executives and authorizing teambased awards.

Our review of IRS documentation showed that IRS is developing a strategy

for using the new separation incentive payments, including an analysis of

personnel needs by location. Section 1202 of the Restructuring Act allowed

IRS to offer voluntary separation incentive payments to employees to the

extent necessary to carry out the reorganization plan. This statutory

buyout authority was intended to afford IRS additional flexibility in

making the personnel decisions needed for its reorganization. Similar to

other federal government buyout programs, this provision would allow

eligible employees to receive up to $25,000 after voluntary separation from

IRS.

IRS has made limited use of the recruitment, retention, and relocation

provisions in section 9504 because the agency has been able to use

existing legal authority to pay such expenses, and new regulations are

currently being drafted. As a pilot project, new authority was granted to

the Memphis Service Center to pay a lump-sum retention allowance to

seasonal data transcribers who returned for a subsequent season. IRS

plans to evaluate the results of this pilot for possible use in other service

centers.

 

14Demonstration projects, like pilot programs, are generally used to illustrate, demonstrate, or test a

proposed program using a limited population or test group.

Streamlined Demonstration

Projects Are Under

Consideration

A Strategy for New

Separation Incentive

Payments Is Being

Developed

Recruitment, Retention, and

Relocation Incentives Have

Been Used on a Limited

Basis
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IRS has made limited use or no use of the remaining personnel flexibility

provisions. For example, section 9505 allowed senior executives who have

program management responsibility over significant functions to receive

performance bonuses without regard to certain limits established in

current federal personnel law. Since enactment, Treasury approved IRS’

request to pay a 25-percent bonus for one senior executive. Other SES

bonuses for fiscal years 1998 and 1999 were limited to no more than 20

percent, the rate permitted by existing legislation.

Section 9506 broadens the definition of a “career reserved position” to

include certain positions filled by limited term or limited emergency

appointees. As of March 1, 2000, IRS had filled three career reserved

positions with limited term appointments. These positions were an

assistant to the Commissioner (3-year term), the Transition Executive for

Shared Services (2-year term), and the Director of Exempt Organizations,

Rulings, and Agreements (3-year term).

Section 9510 provides general rules for workforce staffing and has not

been used. Section 9510(a) provides rules for converting employees from

term appointments to permanent appointments, and section 9510(b)

authorizes IRS to establish category rating systems for evaluating job

applicants rather than assigning numerical ratings. Under this provision,

IRS is authorized to select any candidate in the highest quality category, so

long as veterans’ preference rights have been accorded.

IRS’ implementation of the personnel flexibility provisions of the

Restructuring Act raises several concerns. As already discussed, IRS has

had difficulty eliminating all references to enforcement statistics in

employee evaluations. In addition, IRS has had difficulty developing an

accurate system for tracking taxpayer complaints of employee misconduct

and has experienced a significant decline in enforcement actions, such as

liens, levies, and seizures, to collect delinquent taxes.

IRS recognized that it needs a system for tracking taxpayer complaints of

employee misconduct as defined in section 1203 of the Restructuring Act.

In September 1999, TIGTA reported that IRS did not have an integrated

complaint processing system for identifying and reporting taxpayer

complaints and allegations of employee misconduct.15 Instead, IRS used

existing systems and procedures that were in place before the

 

15TIGTA, 199910070, Sept. 29, 1999.

IRS Has Made Either

Limited Use or No Use of

the Remaining Provisions

Additional Tax

Administration

Concerns in

Implementing the

Personnel Flexibility

Provisions

Errors Could Exist With the

Complaint Processing

System
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Restructuring Act. Thus, IRS cannot ensure that the complaints are not

double-counted because these systems are not linked with one another.

TIGTA noted that IRS is taking significant actions to improve its complaint

processing procedures and systems. IRS actions include the development

of an integrated database that will permit recognition of duplicate

complaints and identify trends. During our work, IRS approved the first

step in this effort by contracting for an analysis of new information system

requirements. According to IRS’ National Director, Complaint Processing

Analysis Group, IRS anticipates having the new system requirements in

place by September 30, 2000.

IRS’ use of enforcement actions, such as liens, levies, and seizures, to

collect delinquent taxes has declined significantly since passage of the

Restructuring Act. We noted in our February testimony16 that comparing

data on enforcement actions before the Restructuring Act to fiscal year

1999 data showed that lien filings were down about 69 percent, levies

down about 86 percent, and seizures down about 98 percent. Moreover,

according to IRS, collections from delinquent taxpayers were down about

$2 billion from fiscal year 1996 levels.

In our testimony, we concluded that while we do not know the appropriate

number of enforcement actions IRS should take, the current number of

seizures is probably too low. We also heard repeatedly from frontline

employees about a lack of guidance on when to make seizures in light of

section 1203, which requires termination of employees for specified

misconduct. Accordingly, in our recent report on seizures,17 we made

recommendations aimed at (1) clarifying when seizures ought to be made,

(2) preventing departures from process requirements established to

protect taxpayer interest, and (3) delineating senior managers’

responsibilities for ensuring that seizures are made when justified. In

commenting on our report, IRS generally agreed with our

recommendations.

We requested comments on a draft of this report from the Commissioner

of Internal Revenue. In a letter dated April 20, 2000, the Commissioner said

that he was pleased with our characterization of IRS’ implementation of

the Restructuring Act’s personnel flexibilities. He also said that IRS was

striving to be a model for the rest of the federal government in the area of

 16GAO/T-GGD-00-53, Feb. 2, 2000.

17IRS Seizures: Needed for Compliance but Processes for Protecting Taxpayer Rights Have Some

Weaknesses (GAO/GGD-00-4, Nov. 29, 1999).

Enforcement Actions Have

Declined Since Passage of

the Restructuring Act

Agency Comments
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Page 10 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

performance management. A Strategic Assessment was attached to the

letter, summarizing IRS’ strategies for managing its human resource needs

(see app. III).

As agreed with your office, unless you announce its contents earlier, we

plan no further distribution of this report until 30 days from its date of

issue. At that time, we will be sending copies to Senator William V. Roth,

Jr., Chairman, and Senator Daniel P. Moynihan, Ranking Minority Member,

Senate Committee on Finance; Representative Charles B. Rangel, Ranking

Minority Member, House Committee on Ways and Means; Representative

William J. Coyne, Ranking Minority Member, Subcommittee on Oversight,

House Committee on Ways and Means; the Honorable Lawrence H.

Summers, Secretary of the Treasury; the Honorable Charles O. Rossotti,

Commissioner of Internal Revenue; and the Honorable Janice R. Lachance,

Director, Office of Personnel Management. We will also make copies

available to others upon request.

If you have any questions, please call me at (202) 512-9110 or Alton C.

Harris at (404) 679-1900. A key contributor to this report was John Gates.

James R. White

Director, Tax Policy and

Administration Issues
Page 11 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
Page 12 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Contents

Letter 1

Appendix I

Summary of

Restructuring and

Reform Act Provisions

Authorizing Personnel

Flexibilities Within IRS

14

Appendix II

IRS Executive

Positions Filled, Hiring

in Process, or

Recruiting in Process

Using Streamlined

Critical Pay Authority

19

Appendix III

Comments From the

Internal Revenue

Service

20

Abbreviations

IRS Internal Revenue Service

OPM Office of Personnel Management

SES Senior Executive Service

TIGTA Treasury Inspector General for Tax Administration
Page 13 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
Appendix I

Summary of Restructuring and Reform Act

Provisions Authorizing Personnel Flexibilities

Within IRS

Page 14 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Title 5 of the U.S. Code provides personnel rules and procedures that

regulate hiring, evaluating, promoting, and firing government employees,

including employees at the Internal Revenue Service (IRS). Section 1201 of

the Internal Revenue Service Restructuring and Reform Act of 1998 (P.L.

105-206) amends title 5, adding a new chapter 95 (sections 9501-10), to

provide IRS with certain personnel flexibilities.

Section 9501 allows IRS certain personnel flexibilities (as provided by

sections 9502-10) if they are exercised consistently with certain existing

provisions in title 5 (e.g. provisions relating to merit system principles and

prohibited personnel practices, preference eligibles, aggregate limitations

on pay, labor management relations, and delegation of authority for

personnel management). Employees within a unit with a recognized

employee union will be affected by the exercise of these personnel

flexibilities only if a written agreement between the union and the IRS so

specifies.

Section 9502 authorizes the Office of Management and Budget (OMB) to

approve requests from IRS for critical position pay up to the rate of pay of

the vice president (3 U.S.C. 104), an increase from what section 5377

allows.1

Section 9503 allows the use of a streamlined process in fixing the

compensation and appointing up to 40 individuals for terms of no more

than 4 years to designated critical administrative, technical, and

professional positions needed to carry out IRS functions. The positions

must require an extremely high level of expertise and be critical to IRS’

accomplishment of an important mission. Exercise of the authority must

be necessary to recruit or retain an individual exceptionally well qualified

for the position and may be used for a period of 10 years after the

provision’s enactment. Appointees to such positions must not have been

IRS employees before June 1, 1998. The total rate of pay authorized under

this provision (including performance and recruitment bonuses) may not

exceed the rate of pay of the vice president. If these conditions are met,

the appointments are not subject to the otherwise applicable requirements

under title 5 governing appointments to the competitive or Senior

 

1

Under 5 U.S.C. 5377, at the request of an agency head, OMB, in consultation with the Office of

Personnel Management (OPM), may grant authority to fix the rate of basic pay for a “critical position”

up to the rate payable for level I of the Executive Service. Section 5377(b) limits this grant of authority

to those positions that require expertise in an extremely high level in a scientific technical,

professional, or administrative field and that are critical to the agency’s successful accomplishment of

an important mission.

Section 1201:

Improvements in

Personnel Flexibilities

Section 9501 Allows

Internal Revenue Service

Personnel Flexibilities

Section 9502 Authorizes Pay

Authority for Critical

Positions

Section 9503 Allows

Streamlined Critical Pay

Authority
Appendix I

Summary of Restructuring and Reform Act Provisions Authorizing Personnel Flexibilities

Within IRS

Page 15 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Executive Service or chapter 51, relating to classification of positions, or

chapter 53, relating to pay rates and systems.

Section 9504 allows IRS to vary from existing provisions governing

recruitment, relocation, and retention incentives for a period of 10 years,

subject to OPM approval.2 This provision also allows IRS to pay from

appropriations allowable relocation expenses (as set out in 5 U.S.C. 5724a)

for employees transferred or reemployed and allowable travel and

transportation expenses (as set out in 5 U.S.C. 5723) for new appointees.

Section 9505 provides that for a period of 10 years, IRS senior executives

who have program management responsibility over significant functions

may be paid a performance bonus without regard to the limitation in 5

U.S.C. 5384(b)(2). Any award in excess of the 20 percent limitation,

however, must be approved by the Secretary of the Treasury.3

 Section 9505

further provides that notwithstanding 5 U.S.C. 5384(b)(3), the Secretary of

the Treasury shall determine the aggregate amount of performance awards

available under this provision to be paid during the fiscal year.4

 This

amount may not exceed 5 percent of the aggregate amount of basic pay

paid to IRS career senior executives during the preceding fiscal year. (A

performance award may not be paid to an executive in a calendar year if

that executive’s total annual compensation will exceed the rate of pay of

the vice president.)

 

2

Under 5 U.S.C. 5753, OPM may authorize the head of any agency to pay a bonus to an employee if OPM

determines that an agency would be likely, in the absence of such a bonus, to encounter difficulty in

filling the position. The amount of the bonus under this section may not exceed 25 percent of the

annual rate of basic pay of the position to which the employee is being appointed (or relocated to).

Under 5 U.S.C. 5754, OPM may authorize the head of an agency to pay an allowance to an employee if

the unusually high or unique qualifications of the employee or special need of the agency for the

employee’s services make it essential to retain the employee and the agency has determined that the

employee would be likely to leave in the absence of a retention allowance. A retention allowance may

not exceed 25 percent of the employee’s rate of basic pay.

3

5 U.S.C. 5384 provides rules for performance awards in the Senior Executive Service. Section

5384(b)(2) provides that a performance award may not be less than 5 percent nor more than 20 percent

of the career appointee’s rate of basic pay.

4

Section 5384(b)(3) provides that the aggregate amount of performance awards paid by an agency

during any fiscal year may not exceed the greater of 10 percent of the aggregate basic pay paid to all

career appointees in the agency during the preceding fiscal year or 20 percent of the average of the

annual rates of basic pay paid to all career appointees during the preceding fiscal year.

Section 9504 Allows

Recruitment, Retention,

Relocation Incentives, and

Relocation Expenses

Section 9505 Provides

Performance Awards for

Senior Executives
Appendix I

Summary of Restructuring and Reform Act Provisions Authorizing Personnel Flexibilities

Within IRS

Page 16 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Section 9506 broadens the definition of a “career reserved position” with

regard to IRS to include certain positions filled by “limited emergency

appointees” and “limited term appointees” (see 5 U.S.C. 3132(a)(5)-(6)).

Section 9506 limits the number of appointees under this provision to up to

10 percent of the number of SES positions available to IRS.

Notwithstanding provisions in section 3132 regarding limited term and

limited emergency appointees, the term of such an appointment is limited

to 3 years, and an appointee is allowed to serve two such terms.5

Section 9507 authorizes IRS to conduct streamlined demonstration

projects under 5 U.S.C. 4703 when certain requirements contained therein

are inapplicable.6

Section 9508 provides that in lieu of a performance appraisal system, IRS

must, within 1 year, establish a “performance management system” that

would maintain individual accountability by (1) establishing one or more

retention standards for each employee related to the work of that

employee, (2) making periodic determinations of whether each employee

meets the established retention standards, and (3) taking actions with

respect to any employee whose performance does not meet the

established retention standards.7

Section 9509 authorizes IRS, subject to criteria prescribed by OPM, to

establish one or more broad-banded pay systems covering all or any

portion of its workforce. For the purposes of this provision, the term

“broad-banded pay system” means any system for grouping positions for

pay, job evaluation, and other purposes that is different from the system

established under chapters 51 and 53 of title 5 as a result of combining

grades and related ranges of pay into one or more occupational series.

 

5

5 U.S.C. 3132 provides definitions and other related provisions for the Senior Executive Service.

Section 3132(a)(8) defines a “career reserved position” as a position that is required to be filled by a

career appointee. Section 3132(b)(1) provides that a position shall be designated as a career reserved

position only if the filling of the position by a career appointee is necessary to ensure impartiality or

the public’s confidence in the impartiality of the government.

6

Under 5 U.S.C. 4703, OPM is authorized, either directly or through agreement or contract with one or

more agencies, to conduct and evaluate personnel demonstration projects. (Demonstration projects,

like pilot programs, are generally used to illustrate, demonstrate, or test a proposed program using a

limited population or test group.)

7

Under 5 U.S.C. 4302, each agency is to develop one or more performance appraisal systems that

provide for periodic appraisals of job performance of employees.

Section 9506 Provides

Limited Appointments to

Career Reserved Senior

Executive Service Positions

Section 9507 Authorizes

Streamlined Demonstration

Project Authority

Section 9508 Provides

General Workforce

Performance Management

System

Section 9509 Authorizes

General Workforce

Classification and Pay
Appendix I

Summary of Restructuring and Reform Act Provisions Authorizing Personnel Flexibilities

Within IRS

Page 17 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Section 9510 is the final provision added by section 1201 of the

Restructuring and Reform Act, and it provides general workforce staffing

rules. Section 9510(a) provides rules for converting employees from term

appointments to permanent appointments. Section 9510(b) authorizes IRS

to establish category rating systems for evaluating job applicants under

which qualified candidates are divided into two or more quality categories

on the basis of relative degrees of merit rather than assigned individual

numerical ratings. Under this provision, IRS is authorized to select any

candidate in the highest quality category, as long as veterans’ preference

rights are accorded.

Section 1202 of the act authorizes IRS to use Voluntary Separation

Incentive Pay (buyouts) to the extent necessary to carry out the plan to

reorganize IRS under section 1001 of the act. Under the provision, eligible

employees could receive a lump sum up to $25,000 after voluntary

separation from IRS.8

Section 1203 of the act mandates that IRS terminate the employment of an

IRS employee if there is a final administrative or judicial determination

that the employee committed certain acts or omissions in the performance

of official duties. There are 10 acts or omissions listed in this provision

that require termination, as follows:

• “willful failure to obtain the required approval signatures on documents

authorizing the seizure of a taxpayer’s home, personal belongings, or

business assets;

• “providing a false statement under oath with respect to a material matter

involving a taxpayer or taxpayer representative;

• “with respect to a taxpayer, taxpayer representative, or other employee of

the Internal Revenue Service, the violation of . . . any right under the

Constitution of the United States or any civil right established under

[certain existing legislation];

• “falsifying or destroying documents to conceal mistakes made by any

employee with respect to a matter involving a taxpayer or taxpayer

representative;

• “assault or battery on a taxpayer, taxpayer representative, or other

employee of the Internal Revenue Service, but only if there is a criminal

conviction, or a final judgment by a court in a civil case, with respect to the

assault or battery;

 8

This provision is very similar to other buyout provisions in previous legislation. See, e.g., the Omnibus

Appropriations Act of 1997, P.L.104-208, section 663, authorizing voluntary separation incentives for

employees at certain federal agencies.

Section 9510 Provides

General Workforce Staffing

Section 1202:

Voluntary Separation

Incentive Payments

Section 1203:

Termination of

Employment for

Misconduct
Appendix I

Summary of Restructuring and Reform Act Provisions Authorizing Personnel Flexibilities

Within IRS

Page 18 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

• “violations of the Internal Revenue Code of 1986, Department of Treasury

regulations, or policies of the Internal Revenue Service (including the

Internal Revenue Manual) for the purpose of retaliating against, or

harassing, a taxpayer, taxpayer representative, or other employee of the

Internal Revenue Service;

• “willful misuse of the provisions of section 6103 of the Internal Revenue

Code of 1986 for the purpose of concealing information from a

congressional inquiry;

• “willful failure to file any return of tax required under the Internal Revenue

Code of 1986 on or before the date prescribed therefor (including any

extensions), unless such failure is due to reasonable cause and not to

willful neglect;

• “willful understatement of Federal tax liability, unless such

understatement is due to reasonable cause and not to willful neglect; and

• “threatening to audit a taxpayer for the purpose of extracting personal gain

or benefit.”

Section 1204 of the act prohibits IRS from using records of tax

enforcement results to evaluate employees or to impose or suggest

production quotas or goals for employees. This provision repealed section

6231 of the Technical and Miscellaneous Revenue Act of 1998, P.L. 100-647,

which prohibited the use of records of tax enforcement results to evaluate

employees directly involved in collection activities and their immediate

supervisors or to impose or suggest production quotas or goals for these

employees.

Section 1205 of the act requires IRS to implement an employee training

program within 180 days of the act’s enactment. The plan, with details as

specified by this provision, must be submitted to the Senate Finance

Committee and the House Ways and Means Committee.

Section 1204: Basis for

Evaluation of Internal

Revenue Service

Employees

Section 1205:

Employee Training

Program
Appendix II

IRS Executive Positions Filled, Hiring in

Process, or Recruiting in Process Using

Streamlined Critical Pay Authority

Page 19 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions

Position

Status as of

February 11, 2000 Appointment date

Chief Financial Officer Hireda August 16, 1998

Chief Information Officer Hired August 11, 1998

National Taxpayer Advocate Hired September 1, 1998

Deputy Commissioner, Modernization Hired September 6, 1998

Director, Government Program Management Office Hired November 2, 1998

Assistant Commissioner, Management and Financial Systems Hired May 9, 1999

National Director, Account Management Division Hired July 19, 1999

Chief, Agencywide Shared Services Hired October 3, 1999

Commissioner, Large and Mid-Sized Business Division Hired November 28, 1999

Chief Criminal Investigation Division Hired December 6, 1999

Director, Program Control (Enterprise Program

Management Office)

Hired December 19, 1999

Commissioner, Small Business and Self-Employed Division Hired January 10, 2000

Director, Real Estate and Facilities Management In process

Deputy Commissioner, Wage and Investment Division In process

Exempt Organizations Rulings and Agreements In process

Senior Technical Advisor, Large and Mid-Sized Business Division (Financial

Services and Healthcare)

Recruiting

Senior Technical Advisor, Large and Mid-Sized Business Division (Food,

Retail, and Pharmaceutical)

Recruiting

Senior Technical Advisor, Large and Mid-Sized Business Division (Energy

and Chemical)

Recruiting

Senior Technical Advisor, Large and Mid-Sized Business Division

(Communications, Technology, and Media)

Recruiting

Senior Technical Advisor, Large and Mid-Sized Business Division

(Manufacturing, Construction, and Transportation)

Recruiting

Director, International, Large and Mid-Sized Business Division Recruiting

Director, Strategy, Research, and Program Planning Large

and Mid-Sized Business Division

Recruiting

Director, Strategic Planning and Client Services, Information Services Recruitingb

a

The Chief Financial Officer resigned effective June 26, 1999.

b

This position is also being paneled for standard SES consideration.
Appendix III

Comments From the Internal Revenue Service

Page 20 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
Appendix III

Comments From the Internal Revenue Service

Page 21 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
Appendix III

Comments From the Internal Revenue Service

Page 22 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
Appendix III

Comments From the Internal Revenue Service

Page 23 GAO/GGD-00-81 Restructuring Act’s Personnel Flexibility Provisions
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